Reno’s office market activity has remained strong through the first half of 2021. The region has not seen the influx of sublease office space and rising vacancies that have burdened other markets in the past fifteen months. Office vacancy increased slightly this quarter to 12.6 percent, though it remains equal to the pre-COVID rate of 12.6 percent in Q1 2020. Quarterly net absorption dipped into the negative at about -3,500 square feet. Year-to-date net absorption is still positive at roughly 18,900 square feet.
Office sales volume continued to tick up in the Q2 2021, with $40.1 million in quarterly sales. This was a 37 percent increase over the previous two-year trailing average. Average sale price per building square foot also grew to $228 this quarter, about 21 percent higher than the previous year’s average. Average actual capitalization rates were compressed by 40 basis points year-over-year to 5.8 percent in Q2 2021. Reno has displayed healthy market fundamentals halfway into 2021.
Businesses began the return to full operating capacities this summer. Smaller businesses, under 5,000 square feet, have led the return to the office and have spurred office demand. Reno has seen sustained population growth in recent years. With fewer operating restrictions and accelerated population growth, expect continued employment recovery and increased demand for office space through the second half of 2021.
Southern Nevada’s office market posted its first significant net absorption since the business closures of 2020, with 295,218 square feet of additional occupancy in the second quarter of 2021. This is comparable to net absorption in the first quarter of 2020, just before the business closures took place. With that and new office product under construction, southern Nevada’s office market appears to have weathered the COVID storm relatively intact. There remains the question of how COVID will impact office demand trends.
Prior to the Great Recession, Las Vegas office users occupied approximately 274 square feet per employee. Post-Great Recession, this number has slowly trended downward, and there is certainly the possibility that work-from-home schemes will reinforce this trend, slowing the office market’s recovery.
For now, the return of strong demand to the valley’s office market is cause for celebration. Experts speculate how long it will take to reach our pre-COVID market. Economic recovery appears to be gaining steam with the re-opening of the Las Vegas “Strip” to full capacity and the return of conventions to the Valley. We think the office market will continue to recover through the remainder of 2021 and may return to its pre-COVID vacancy rate by midyear 2022.